India s fiscal deficit and related issues

Silver coin of the Gupta dynasty5th century AD.

The combination of protectionistimport-substitutionFabian socialismand social democratic -inspired policies governed India for sometime after the end of British rule. Even here the treatment has been selective, e. Thus there is urgent need for tax reforms.

The difference between the fiscal deficit and primary deficit shows the importance of interest payments on public debt incurred in the past. Now the data regarding these deficits, namely, 1 Revenue deficit, 3 Primary deficit are provided in the budget documents.

The government budget is not required to be balanced and fiscal deficits are permitted. This is the theme of benefit incidence analysis. It is shown that the impact of the deficit depends upon the mode of financing it. Apart from that it has to pay back the internal and external debt taken.

Muslin trade in Bengal and Economy of the Kingdom of Mysore The Indian economy was large and prosperous under the Mughal Empireup until the 18th century.

Secondly, the government can finance the fiscal deficit by borrowing from the Reserve Bank of India which issues new notes against government securities. However, in recent years the data regarding budgetary deficit is not separately provided by the government and it has become a part of fiscal deficit which is shown to be financed by government borrowing and other new liabilities.

This shows expenditure on interest payments exceeded borrowing by the Government. Given India s fiscal deficit and related issues constraints many developing countries like India have to opt, to a considerable extent, on non-bond monetary financing of the deficit.

The Mughal economy functioned on an elaborate system of coined currency, land revenue and trade. This, in turn, yields further benefits in terms of higher rates of investment, growth, educational attainment, increased distributional equity and reduced poverty.

Primary deficit is another important concept of budgetary deficit. In India, in the year primary deficit was 1. Deficits can be growth enhancing if financed by limited seigniorage but it is likely to be growth inhibiting if financed by domestic debt; and to have opposite flow and stock effects if financed by external loans at market rates.

Gold, silver and copper coins were issued by the royal mints which functioned on the basis of free coinage. On this borrowing, the government has to pay rate of interest annually.

This mismatch between expectations from and actual effectiveness of policy is particularly acute in India, as compared to developed countries. Now, this fiscal deficit can be financed in two ways.

The British East India Company, following their conquest of Bengal inhad forced open the large Indian market to British goods, which could be sold in India without tariffs or dutiescompared to local Indian producers who were heavily taxedwhile in Britain protectionist policies such as bans and high tariffs were implemented to restrict Indian textiles from being sold there, whereas raw cotton was imported from India without tariffs to British factories which manufactured textiles from Indian cotton and sold them back to the Indian market.

The economy was then characterised by extensive regulation, protectionismpublic ownership of large monopolies, pervasive corruption and slow growth.

This article has outlined some of the major challenges that India face in some key areas of fiscal policy: Typically this calls for reduction of current subsidies and augmentation of subsidies for well-defined capital projects.

Firstly, through borrowing by the government from the market, both inside and outside the country. Nevertheless, the onus on fiscal policy remains substantial. Pressures for populism through price controls and the like are considerable. Raising the rate of savings and the rate of growth of the economy becomes a circular issue — the higher the rate of savings the higher the rate of growth of the economy and the higher the rate of growth the higher the rate of savings at least at low absolute levels of per capita income.

Monetisation of Fiscal Deficit: This then establishes a direct links between fiscal policy and the monetary base of the central bank blurs the distinction between fiscal and monetary policy and compromises central bank independence. Therefore, if fiscal deficit has to be reduced, interest payments in the revenue account should be reduced which can be done if past public debt is quickly retired by mobilising more resources and curtailing non-developmental public expenditure.

Of particular interest to economists is the impact of fiscal deficits on the prospects for economic growth. Mughal era — See also: Their results also point to the possibility of incomplete.

In the old terminology, it was known as deficit financing in India.

Therefore, primary deficit is much lower than the fiscal deficit. Fiscal policy works through both aggregate demand and aggregate supply channels. Fiscal deficit is the excess of total expenditure both on revenue and capital accounts over revenue receipts and only non-debt type of capital receipts such as recoveries of loans.The Fiscal Policy and Fiscal Deficit in India!

Government expenditure on goods and services and resources mobilised by it through taxes, etc., are important factors that determine aggregate demand in the economy. When there is a deficit in the budget of the government, it spends more than it.

STCI. 2 February Primary Dealer Ltd India in Twin Deficit Club – Implications and Issues Amol Agrawal [email protected] + Indian economy is one of the few economies in the world to have both fiscal and current account deficits.

In fiscal year –15, India was the third-largest producer of raw steel India's exports were stagnant for the first 15 years after independence, India's current account deficit reached an all. May 31, · India’s fiscal deficit in the year ended March came in at % of gross domestic product, in line with the revised estimates, government data showed on Thursday.

India revised its fiscal Author: Reuters. Description: The gross fiscal deficit (GFD) is the excess of total expenditure including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts. The net fiscal deficit is the gross fiscal deficit less net lending of the Central government.

Major challenges that India face in key areas of fiscal policy Introduction Fiscal policy plays an increasingly important role in India. Decisions on fisca Major challenges that India face in key areas of fiscal policy Introduction Fiscal policy plays an increasingly important role in India.